The defining claim of New Labour has been that economic efficiency and social justice go hand in hand. Yesterday's unemployment figures bore chilling testimony to the converse of this well-worn mantra. The latest surge in joblessness represents injustice and waste in equal measure, to say nothing of human misery. The 220,000 individuals thrown on to the scrapheap in the three months to June face boredom, poverty and the humiliation of feeling as if they are a burden on the rest of society. Worse, it is starkly obvious that they will not be the last.

A profound and pernicious change in British society is getting under way. Joblessness is up in every English region, in sectors from metal bashing to luxury hotels. All the graphs are pointing so firmly southwards that – even on the most optimistic scenario – it will take several months for them to flatten off. With more than 2.4 million already without work, a 1980s-style peak of 3 million is now in prospect. Indeed, one of the first people to predict that – the Bank of England's prescient former rate-setter David Blanchflower – was yesterday talking about the possibility of reaching 4 million.

Not quite armageddon

This grim statistical pageant comes in spite of big and bold actions by policymakers. Over the last year, there have been rate cuts, a devaluation of the pound, a giveaway budget and the programme of pumping money into the financial system known as quantitative easing. In normal times, any of these measures would have constituted a big boost; but the lay observer could be forgiven for asking whether they have done any good at all. Unemployment is a lagging indicator – that is, one of the last sets of statistics to improve in a recession. Companies do not tend to go hiring until they are confident about the economic outlook. After the American dotcom bubble burst in 2001, it took around 30 months for the US job market to recover. This is a much bigger recession.

Furthermore, it is almost certain that the economy would be in even worse shape had Gordon Brown and Mervyn King not acted as they did. Just 10 months ago, bankers in Britain were talking about armageddon, while panic-stricken economists were consulting their histories of the Great Depression. Whatever his other shortcomings, Mr Brown's political epitaph may very well read: "He averted catastrophe." That is not a negligible boast, even if he will bequeath mass unemployment. And it should also be remembered that David Cameron and George Osborne opposed many of the measures that helped: they complained about sterling's fall, they jibed about the Bank's quantitative easing, and they were dead against the government spending more. And they did all this without volunteering serious alternative remedies.

Shoring up the recovery would normally call for more action by either central bankers or government ministers. The trouble is, neither has many options left. At 0.5% the Bank's key interest rate cannot fall much further. The arguments over public debt – and their terrible mishandling by Mr Brown – make any extra spending in this autumn's pre-budget report (however justified) very unlikely. And quantitative easing is clearly not having a tangible impact on businesses or households.

What to do? The most obvious solution lies with the banks. As the Bank's inflation report shows, sound businesses that want credit cannot get it. Mr King's suggestion yesterday that he would slap penalty interest rates on commercial banks that hoard cash sounds like a policy that should be implemented as soon as possible. It is also clear that the government needs to lean more heavily on RBS and Lloyds and direct them to lend more and to particular sectors.

Misspent youth

In less than a year the crisis that started in City skycrapers has descended to the streets. Yesterday's figures identified tens of thousands of newly unemployed youngsters, as well as tens of thousands more who have grown so disillusioned that they are no longer even looking for work. Among those leaving school at 16 or 17 – a group with few rights to benefits – fully two-thirds are now classed as either jobless or dropouts. In the face of this army of youngsters with nothing to do and nothing to lose, the language of Broken Britain could easily start to ring true. The government has rightly made a priority of finding money for the so-called September guarantee that is supposed to ensure that all of these teenagers can receive gainful training. A step that is now urgent is giving teenage school-leavers an understandable account of what is on offer, recognising that many of these youngsters are from disadvantaged backgrounds where little stress is laid on education.

The spectre of enforced idleness is also casting a shadow right the way up the educational ladder. The young people who today offer the Guardian first-hand accounts of unemployment represent every rung, from high-school dropouts to university graduates. Dig into the raw data, and the real number signing on is growing twice as fast as the headline figure; the latter is seasonally adjusted to strip out the annual flow of new graduates because it happens every year. But these graduates are real people who still have to find jobs. Many of the graduates of 2009, the first to pay top-up fees, are likely to feel that they have been sold a dud investment. Elite universities are currently licking their lips at the prospect of even higher fees, but these are bound to run into bitter resistance when, for growing numbers of students, college is proving to be a shortcut to nowhere in particular.

Human tragedy

The overstretched employment services are not well equipped to respond to the aspirations of young graduates. They are not alone: the Audit Commission warned councils yesterday that the after-effects of unemployment will be seen in everything from domestic abuse to pets being abandoned on the streets. It noted that councils in deprived areas, with past experience of high unemployment, have more advanced plans this time around. Social problems often need to be tackled with public money, which is starting to run out. By tying services together more smartly, however, councils can often make a real difference inexpensively. Asking GPs who are treating people for stress to alert them to debt-counselling services, for instance, is the type of recession-savvy move which could offer protection without breaking the bank.

The credit crunch is two years old this week. At times it has been seen as a matter for the nerds, and at others treated as if it were a mere sideshow to duck islands and other expenses scandals. But yesterday's figures underline that it is fast translating into human tragedy. Politicians who cannot grasp that it is the stuff of real life are not living in the real world.